Microsoft 2.0 – The new Beginning

Microsoft is preparing to enter into a new era with the departure of Ballmer. Not that Ballmer’s period as the CEO was bad, but a bright future lies ahead for the technology giant. The acquisition of Nokia and a possible acquisition of BlackBerry would enable Microsoft to gain a much needed foothold in the mobile market – enterprise in particular.

It is rare to see a giant like Microsoft reinventing itself so drastically when they are enjoying a period of relatively good growth. This emphasizes that the company works towards its long term goals and cannot be judged by short term falls. Competition is nothing new for Microsoft. They had, in the past, engaged themselves in decade long wars and have emerged successful most of the time. The most famous being the browser wars with Netscape. With IE, it took about 7 years for them to emerge at the top – at 92%. And then with the same IE, it took 7 more years for them to get to the bottom – at 44%. The keyword here is that it is the “Same IE”. They kept it much longer at the shelf – so long that it went stale and got rotten. That contributed to the loss of market share. Microsoft needs to learn from mistakes and should embrace newer technologies and invent great new ideas. It has the potential, but the passion is missing.

Microsoft has secured such a distinct place in the technology business that it requires a combination of rivals to compete with Microsoft as a unit. Google is another great company and Microsoft competes with Google in search and Mobile platform. Google does not have a product competing with Microsoft Office for instance (QuickOffice is just starting up and not exactly in a position to compete with MS-Office). So a company like Google is competing with just two divisions of Microsoft. Apple competes with Mobile and OS division of Microsoft. However Apple’s desktop OS market share is as only good as Microsoft’s Mobile OS share. In strict sense, Apple competes with Microsoft only on mobile platform though Apple is a clear winner here as of now. Oracle’s offerings would compete with three products namely SQL Server, Dynamics and .NET Platform. Hence, Microsoft as an organization is resilient by nature. If a division takes a hit, it can always earn from the others. It mints cash as always and has now began to evolve and reinvent. This is a positive sign for Microsoft.

This is precisely the reason why splitting the company or spinning of business divisions would be an extremely bad idea. Splitting up would break this resilient nature of the company and consequently it would become more easier for the competitors to gain inroads into Microsoft’s territory. And spinning of divisions like Bing would be highly detrimental to the company in the long run. Even if Bing is unable to generate any revenue at the moment, it is very important to keep it moving. Bing is critical to Microsoft and Microsoft knows this. Bing would eventually be successful though it is unlikely to replace Google for a foreseeable future. If future holds good for Bing, Google Search may finally have a formidable competitor.

The company needs to streamline its process to a huge extent. Any undue emphasis on process and methodologies over people and core skills is a clear indication that innovation is dying out. A technology company like Microsoft cannot afford to waste time and effort on the excesses of these process. Skill coupled with creativity alone could fuel innovation – something which no amount of processes or audits could measure up. Google for instance, does not lay emphasis on process or methodologies and they are judged to be highly innovative. Microsoft needs to trim down its process teams and redeploy them in such a way that they contribute to the bottom line.

Microsoft will have to evolve and it has to be fast. Hopefully the new CEO would be technically inclined with an entrepreneurial spirit. It would be great to have a young and energetic leadership team working on short term plans in tandem with an older and more patient leadership team evolving long term strategies. Though Microsoft appears to be well positioned in the long term and insulated from short term failures, any wrong move anymore (like missing another potential opportunity) would derail the prospects of the company and would send the growth spiraling downward.

Microsoft is heading towards an incredible transformation as outlined by Steve Ballmer in one of his speeches. With most of the growth parameters in an upward trend (revenues up, profits up, dividends up, cash up, PE low, ROE high), the current stock price seem to be a bargain considering the potential this Company can unleash in the long run.